Bolitho v Banksia Securities [2014] VSC 8

This case concerns a class action by investors in a debenture fund against the fund, its accountants and directors arising out of alleged nondisclosures in its prospectuses, contravening section 728 of the Corporations Act. The non-disclosures focus on the bad loans in the portfolio, including those purchased from Statewide. The investors also claim that such non-disclosures resulted in the fund breaching its obligation to carry on its business in a proper and efficient manner and that the directors were involved in such contraventions. The claim against the trustee is based upon a failure to exercise reasonable diligence as to the fund’s ability to repay or whether the fund had committed breaches of the trust deed and its obligations. The investors sue for damages and seek leave to amend their statement of claim.

The defendants sought to strike out the claim and the plaintiffs sought leave to amend.

The court noted that the case raised significant issues on which there was no direct authority and involved significant sums of money. The court held it would not refuse leave to amend on the basis that the claim would necessarily fail. However the court did find the following deficiencies in the pleaded claim:

  1. The court noted that that the causation cases were not properly pleaded in terms of how the investors would have become aware of the true position and what would have happened as a result. However the court did recognise that it was not necessary to plead every counterfactual;
  2. The court found the pleaded case against the auditors deficient in that it did not identify what statement by them made which part of the documents misleading;
  3. The court also found difficulties in the case pleaded against the trustee in respect of causation and knowledge.

The court refused leave to amend but permitted the investors the opportunity to redraft their pleading and make another application for leave to amend.

Click here to read the full judgment

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